Taylor Little: Homebuyers need more transparency, not another mortgage stress test

Just over a year ago, the mortgage stress test was imposed in Canada. The result was that many Canadians who had previously qualified for a conventional mortgage no longer made the cut, failing to demonstrate that they could support payments at rates two percentage points above what was offered by conventional lenders.

In January, rumblings of new overreaching stress tests lurched forward again, this time aimed at restricting lending activity in the non-federally regulated sector. Unlike the B-20 stress test, the proposed stress test for alternative lenders was promptly denied by Finance Minister Bill Morneau, instead sparking renewed discussion around the realities of the stress test and the implications of further reducing borrowing options for Canadians pursuing a mortgage.

The Office of the Superintendent of Financial Institutions (OSFI) first implemented the B-20 stress test on Jan. 1, 2018 to uphold the safety and stability of the Canadian banking economy, and to protect the taxpayers who were funding the banks’ lending activity. For a long time, the Canadian economy sustained an upward trajectory of credit, resulting in a rapid housing price growth in Vancouver and the Greater Toronto Area. As conventional lenders began to compete to meet the growing demand for loans, OSFI stepped in to ensure safeguards were in place to regulate their activities in the inflated market environment.

That same year, the Bank of Canada increased its overnight rate three times from one per cent to 1.75 per cent. As a strategy to protect both the integrity of the banking system and homebuyers from fluctuating rates in the future, banks became required to test borrowers’ abilities to qualify at OSFI’s rate of at least two percentage points higher than the present-day contractual mortgage rates.

The stress test was applied with the intention of protecting Canadians from taking on more …read more

Source:: Vancouver Sun

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